Failure to disclose effect of compensation on opinion isn't actionable under Lanham Act (but maybe in NY)

Casper Sleep, Inc. v. Hales, No. 16-cv-03223, 2016 WL 6561386, --- F.Supp.3d ---- (S.D.N.Y. Oct. 20, 2016)

Casper is a mattress e-retailer. (Discussion of a similar lawsuit it filed here.) Defendant Derek Hales is a specialist reviewer who runs www.sleepopolis.com, where he writes reviews of and blogs about mattresses, as well as a YouTube channel featuring video reviews and a Twitter account where he interacts with people and promotes Sleepopolis.  Hales uses affiliate marketing and offers coupon codes for some mattress companies to generate revenue.  Hales isn’t in an affiliate marketing relationship with Casper.

Hales disclosed his affiliate marketing relationship in at least three places on the Sleepopolis website: in a text-box sidebar labeled “Referrals & Honest Reviews,” available in any given mattress review; and in both the “Commitment to Integrity & Honesty” and “Affiliate Links” subsections of his “Disclosures” page, accessible through a hyperlink in the “Referrals & Honest Reviews” sidebar.

Casper alleged that these disclosures were false or misleading “insofar as they make it seem like Hales’s reviews are unbiased, when, in fact, his mattress endorsements are underwritten by the mattress companies featured positively in his reviews.” In fact, Casper alleged that Hales’s affiliate marketing relationships, or the absence thereof, influenced his reviews to be positive for companies with whom he had a relationship and negative for Casper. In head-to-head comparison reviews, Hales “inevitably concludes that the non-Casper mattress is superior.”

The court found most of Casper’s allegations to be non-actionable under the Lanham Act.

As for the mattress reviews, Casper alleged that these weren’t really reviews but veiled ads. E.g., “I’m impressed. I’m sleeping as well as I ever have. The Leesa mattress just feels incredible. So much so that a life-long stomach sleeper is able to sleep comfortably on his back and side.”  In comparing Casper mattresses to those sold by his affiliates, Hales said things such as: “After sleep testing each mattress, I have come to the conclusion that Purple is the outright better choice. The hyper-elastic polymer top layer in addition to the multiple layers of polyurethane foam simply make a more supportive, cooler, and higher performance mattress than the Casper.”  These are, on their face, statements of opinion to which the Lanham Act doesn’t apply:

Hales’s opinions and comparisons are not objectively verifiable, because if there is one true thing in this world, it is that different people experience mattresses differently, and have different preferences among mattresses. One man’s comfortable mattress is another’s “princess and the pea” sleep experience. In my own house, to take an example, one family member detests memory foam, while another will sleep on nothing else. It is simply not possible to “objectify” a sleeper’s reaction to a mattress in a way that transforms what is essentially opinion into an objectively verifiable fact.

There was no exception to the “statements of opinion are not actionable” rule for “statements of opinion that are influenced by factors such as a financial relationship,” even for reviews structured as comparisons or reviews containing facts.  (E.g., an opinion that one mattress is “technically superior” is not changed to fact by adding in the verifiable claim that the mattress had a “hyper-elastic polymer top layer in addition to the multiple layers of polyurethane foam.”  Those claims are fact, but the resulting claim that the mattress “feels more supportive and cool to me” is an opinion.) 

Moreover, the financial relationship between Hales and his affiliates was disclosed.  There were direct links to the websites of all the praised mattresses, but no direct links to Casper.  The court understood Casper to argue that Hales should be clearer about the influence money has on the comfort of his sleep, but “as long as the consumer is told about the affiliation and the financial reward that comes to Hales when a reader makes a purchase after clicking Hales’s affiliate link, s/he is free to factor that into his/her evaluation of the value of Hales’s reviews.”  Parenthetically, the court noted that money might not even be influencing Hales’s conclusions.

Separately, Casper alleged that Hales’s disclosures of his affiliate marketing relationships were actionable because they failed to give adequate notice about Hales’s financial interests. E.g., “If you use one of my links and purchase a mattress or other product you should know that the respective companies pay me a small referral fee. These referral bonuses help me continue to create great content and pay for other expenses associated with the site. Most of the products reviewed were given to me by the manufacturer. Visit my full disclosures page for more information.”  The court found these disclosures to be “plain[]” and present in several places on his site, “fully inform[ing]” consumers about the payment.  “[E]ven if Hales’s disclosures are somehow inadequate, a failure to disclose, by itself, is not actionable under the Lanham Act.”  An actionable omission only exists if it renders separate affirmative statements of fact false or misleading.  The allegedly inadequate disclosures were not separate statements of fact. 

Casper also alleged that the disclosures contained false statements about the impact of Hales’s marketing relationships on his mattress reviews. The court found these statements potentially false: “No review or content is written, directed, or otherwise influenced by any manufacturer or sleep company”; “No review or content is paid for by any manufacturer or sleep company”; “No member of Sleepopolis is employed by any mattress or sleep company”; and “Sleepopolis does not have any paid advertisements. Any links, images, or promo codes you find on-site are there because they provide great value for my readers.”  

By contrast, “All reviews you find on Sleepopolis are genuine, honest, and based on my personal views of the product,” “All content on Sleepopolis is 100% my own opinions and thoughts,” and “All companies pay Sleepopolis nearly the same amount per referral and no company receives preferential treatment because of these referrals” didn’t contain actionable factual claims.  The first two statements weren’t necessarily false or misleading, even assuming the content is influenced by Hales’s commercial relationships. “The fact that Hales receives a kickback does not make his thoughts any less his own.”  The final statement wasn’t literally false because it didn’t say that Casper was one of the affiliates, and there was no allegation that Sleepopolis linked to Casper’s website.  Anyway, Casper failed to plead plausibly that this statement caused it injury: even if consumers believed that there was an affiliate relationship, Casper didn’t explain how that damaged Casper’s reputation or took away its business. Instead, Casper was complaining about the bad reviews, but those reviews weren’t actionable.

NY General Business Law § 349: For the reasons given in Casper Sleep, Inc. v. Mitcham, linked above, Casper’s claims based on affirmative acts and omissions survived. “Casper also alleges injury and plausibly links Hales’s deceptive or misleading acts to this injury: when Casper had an affiliate marketing relationship with Hales, Hales gave Casper positive reviews, and when Casper terminated the relationship, Hales gave Casper poor reviews.”